Responsible investing is paying dividends for Australia’s $3.4 trillion super industry, a new report shows

Responsible investing is paying dividends for Australia’s $3.4 trillion super industry, a new report shows
Responsible investing is paying dividends for Australia’s $3.4 trillion super industry, a new report shows. Photo: Getty Images
  • Super funds with rigorous ESG frameworks in place went on to claim 42% of the market’s assets through 2021.
  • They outperformed the sector’s laggards, too, with a lead of 87 basis points over the last year, and 56 basis points over the last seven.
  • Simon O’Connor, CEO at the Responsible Investment Association of Australasia, said the year’s results make plain what has been on the cards for quite some time.
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Australia’s super industry is learning that it pays to be good, as leaders in sustainability and transparency came to outperform the market’s laggards with responsible investment.

According to the Responsible Investment Association of Australasia, about a quarter of Australia’s super funds have come to control 42% of the market’s assets as a result of establishing “leading responsible investment” principles, up from the 28% they held in 2019.

The funds that have committed to rigorous environmental, social and governance (ESG) frameworks are also outperforming those who haven’t with a lead of 87 basis points over the last year, and 56 basis points over the last seven years.

Simon O’Connor, CEO at the Responsible Investment Association of Australasia, said the year’s results make plain what has been on the cards for quite some time.

“Australians are realising the often superior financial performance of leading responsible investment super funds, and are moving their money to reap not only benefits for society and the environment, but their retirement savings as well,” he said. 

The number of funds leading the charge on responsible investment, though, remains the same as it was in 2019, with just 13 of the industry’s 53 funds operating on the foundations of clear environmental, social and governance (ESG) frameworks. 

Among them are Active Super, Australian Ethical Super, AustralianSuper, Aware Super, BT Superannuation, CareSuper, Cbus, Christian Super, HESTA, Mercer Superannuation (Australia) Limited, Rest, UniSuper and Vision Super.

But the majority of funds still have a way to go. The study found that 77% of the industry’s largest funds still fall well short of the transparency standards they’ll soon be required to meet under new legislation that will force them to publicise their holdings from next year. 

Concerns are surfacing at a boardroom level as a result. In the face of rising public concern and the increased financial materiality of climate change, 92% of funds said that consideration for greener positions on investment and operation had reached the highest levels of management. 

Ryan Korinke, global head of sustainability at US investment firm PIMCO, said it’s encouraging to see the pool of funds responsible for the world’s biggest pension pool start to take responsible investing seriously. 

“Asset owners in Australia and New Zealand are bellwethers for sustainable investing in the Asia region and globally, which makes the results of this study — showing their increasing commitment to responsible investment practices — particularly encouraging,” he said. 

For the first time, responsible investment approaches have played a role in strategic asset allocation among the majority of the industry’s funds, up to 55% from the 39% who were doing so in 2019. 

The shift comes in the wake of immense pressure directed at the industry by Australian workers, reaching an inflection point through the 2019–20 “Black Summer” bushfire season which brought about outsized pressure to dump high-emitting investments.

At the time, some said the change was long overdue, as major investment outfits abroad, like BlackRock, and Europe’s largest pension fund Stichting Pensioenfonds ABP, in February last year started to fold on investments in carbon-heavy operations. 

The trend has been slower to pick up in Australia, but funds that are heeding market warnings are reaping rewards, even if only to shake off a longstanding reputation for yielding passive returns and charging exorbitant fees. 

Only last year, four of Australia’s biggest super funds said they stood for climate action, but often vote against it. 

Independent research released last February found that AustralianSuper, UniSuper, HostPlus, and HESTA were still heavily invested in fossil fuels to the tune of billions, despite making commitments to reduce climate risk. 

At the time, the four funds — some of the biggest and most powerful in the country — claimed they would remain invested to improve coal, oil and gas companies from within.

Changing attitudes towards ESG in general have had a trickle down effect across corporate Australia, including the boardrooms of major emitters, who fear they’ll soon lose out on major super fund investment without responsible, transparent governance frameworks in place.

It’s a shift that has so far prompted marquee resignations and boardroom reshuffles at firms that have long considered themselves out of reach. 

In March this year, Simon Thompson and Michael L’Estrange, two senior executives at Rio Tinto, stood down from their roles at the mining giant after widespread backlash over its role in the destruction of a 40,000-year-old Aboriginal heritage site at Juukan Gorge. 

At global investment manager AMP Capital, a years-long sexual harassment scandal forced the firm to reshuffle its board make up twice in as many years.